Dear Apple: Good Luck Against The Smartphone Black Market

Apple's fingerprint technology is an effort to combat smartphone theft.

Ng Han GuanAP

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Originally published on September 16, 2013 12:09 pm

Last week, Apple introduced two new iPhones with new features, including fingerprint recognition on one model, and extra password protections. But the new technology is up against a sophisticated black market that has had years to grow and adapt to meet the world's desire for smartphones.

To call smartphone-related crime an epidemic is not an exaggeration. By one estimate, more than 4,000 phones are stolen every day in the United States.

Last year the crime rate in New York City rose after years of declines. The reason? Fifteen thousand people reported a stolen phone.

Jessica Ingle was one; her phone was stolen in a crowded bar. "I didn't even notice it," she says. "They must be experienced or something at doing it without people noticing."

The weird thing, Ingle says, is that the thief actually left her wallet in her handbag. Only the phone was missing; it was never found.

Officers are doing their best to fight crime, says Pat Timlin, a former deputy commissioner in the New York City Police Department. But the odds are against them. Smartphones are easy to grab, he says, and they're almost as liquid as cash.

Tracking The Black Market

An insatiable appetite for smartphones has turned the black market into a global enterprise, efficiently sending ill-gotten gadgets wherever demand is greatest.

But no one has a complete picture of the size or scope of the black market. One can only catch it in glimpses.

In a report for NYPD, Timlin found stolen phones changing hands all over the city. "We saw bodegas, we saw local laundromats, and we saw back-alley sales," he says.

In March, the California attorney general announced the arrests of two individuals who allegedly paid homeless people to buy discounted phones on a two-year contract, and then shipped the devices in bulk to Hong Kong.

There, phones can sell for $2,000 each — 10 times as much as in the states. The accused allegedly took in almost $4 million in less than a year.

Larger Than Thefts

"I hate the guys who do this type of stuff," says Marc Rogers of the online security firm Lookout. He is a hacker who frequents forums where information on the black market for cellphones is exchanged. He says that in the global game of cat and mouse, the mouse is usually faster.

For example, some European authorities created blacklists, where users could report stolen phones and block them from being used again on other networks. But Rogers says criminals quickly realized that by shipping devices to foreign countries, they could sidestep the blacklists and probably sell for close to retail price.

Law enforcement tends to focus on thefts on the street and in subways. But Rogers believes police will only make progress when the black market itself is squeezed.

He says the security features in Apple's new operating system, like fingerprint ID and the requirement that you enter a password before resetting the phone, are a good start.

"Ultimately, it would be fantastic if we could get it set up so once a device is stolen, the only value there is from the parts," he says.

New York police will be on high alert when Apple's new iPhone goes on sale Friday. Since the first iPhone debuted six years ago, they've noticed that every new Apple product comes with a spike in street crime.

A little business news now. Apple introduced two new iPhones last week. New features include a new operating system, more color choices, slow motion video. And on one of the models, a fingerprint security scanner called Touch ID. Users can simply touch to unlock the phone instead of entering a password. Now as it is, about half the smartphone users do not bother with security pass codes, making the phones prime products for thieves.

From member station WNYC, Ilya Marritz reports the new fingerprint technology could help to thwart a rising black market of smartphones.

ILYA MARRITZ, BYLINE: To call smartphone-related crime an epidemic is not an exaggeration. By one estimate, more than 4,000 phones are stolen everyday in the United States.

Last year, the crime rate in New York City rose, after years of declines. The reason? Fifteen thousand people reported a stolen phone. People like Jessica Ingle.

JESSICA INGLE: It was like a really crowded bar and I didn't even notice it. They must have unzipped the bag and kind of just - they must be experienced or something in doing it without people noticing.

MARRITZ: The weird thing, Ingle says, is the thief actually left her wallet in her handbag. Only the phone was missing. It was never found.

PAT TIMLIN: So it has been frustrating.

MARRITZ: Pat Timlin is a former deputy commissioner in the New York City Police Department. Officers, he says, are doing their best to fight crime. But the odds are against them. Smartphones are easy to grab, and he says they're almost as liquid as cash. In a report for the NYPD, Timlin found stolen phones changing hands all over the city.

TIMLIN: We saw bodegas, we saw local laundromats, and we saw back-alley sales.

MARRITZ: But no one has a complete picture of the size or scope of the black market. You can only catch it in glimpses.

So I'm sitting in my car now with an iPhone 4 that I borrowed from my co-worker. This was her old phone, she doesn't use it anymore, and she actually wiped it.

I spent a day driving around Brooklyn, hitting up places that advertise on Craigslist, saying, we buy used iPhones. A buyer named John agrees to meet me on the street in a run-down part of town.

I feel a little nervous about this, I have to say. Let's see what happens.

John spots me right away. We shake hands and he takes me inside, a beauty parlor, where women sit underneath hair dryers. They hardly look up from their magazines as John introduces me to his business partner. This guy picks up the phone, flicks through several screens. And says, how much do you want for it?

I don't sell it.

OK, I'll just say it. It didn't seem to me like these guys were too concerned out of any ethical standpoint where the phone came from. They also seemed pretty confident - I have to say - after looking over a phone that had been wiped, that they would be able to sell it on, no problem.

UNIDENTIFIED WOMAN: Hundreds of smartphones bought and sold in what prosecutors are calling an international scheme that connects the homeless with buyers in Hong Kong.

MARRITZ: That's KCRA TV in Sacramento. In March, the California attorney general announced the arrests of two individuals. They allegedly paid homeless people to buy discounted phones on a two-year contract. Then they shipped the devices in bulk to Hong Kong, where phones can sell for $2,000 each - 10 times as much as in the states.

The accused allegedly took in almost $4 million in under a year.

MARC ROGERS: I hate the guys who do this type of stuff.

MARRITZ: Marc Rogers is with the online security firm Lookout. He's also a hacker, who frequents forums where information on the black market for cell phones is exchanged. He says in the global game of cat and mouse, the mouse is usually faster.

When some European authorities created blacklists, where users could report stolen phones and block them from being used again on other networks...

ROGERS: The criminals quickly realized that if you completely sidestep the blacklist by shipping the devices to foreign countries that don't participate in any programs like this, then you could probably sell the devices for close to retail price.

MARRITZ: Law enforcement tends to focus on thefts on the street and in subways. But Rogers believes police will only make progress when the black market itself is squeezed. He says Apple's new features, like fingerprint ID and the requirement that you enter a password before resetting the phone, are a good start.

ROGERS: Ultimately, it would be fantastic if we could get it set up so that once a device is stolen the only value there is from the parts.

MARRITZ: Police will be on high alert when Apple's new iPhones go on sale later this week. Since the first iPhone debuted six years ago, they've learned that every new Apple product comes with a spike in street crime.